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Competitive advantage and steel’s war plan to regain it

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Former President Ronald Reagan once said that "to make the international trading system work, all must abide by the rules." He didn't say some must abide by the rules; nor did he say we should allow our trading partners to bend (or obliterate) the rules without consequences.

Today, it is more important than ever for this administration and Congress to get tough on fair trade—and the Currency Reform for Fair Trade Act of 2009 (CRFTA) is a critical step in this direction.

The American Iron and Steel Institute (AISI) joins other organizations in strong support for the CRFTA for several good reasons, but a major reason is that it addresses currency manipulation by foreign governments, which has contributed to serious global structural imbalances and provides a huge unfair—and artificial—competitive advantage.

While the United States plays by the rules and adheres to its World Trade Organization (WTO) obligations, some of our trading partners don't. Foreign countries engage in illegal currency misalignment when they effectively prevent market forces from determining the value of their currency. This practice allows those foreign countries to artificially make their exports cheaper and their imports more expensive, thereby putting American goods and services at an unfair competitive disadvantage.

China has been intervening massively in foreign exchange markets to keep its own currency severely undervalued (by at least 40 percent) for more than a decade. This essentially gives China a first-and-goal position on America's 10-yard line and has resulted in lowering America's annual gross domestic product by as much as $500 billion. Another result is a buildup of foreign currencies that can be used to acquire foreign assets with what amounts to "free money." This mercantilist policy not only subverts real free trade but also adds to the massive imbalances that threaten the global trading system.

American steelmakers and their workers can compete with anyone in the world as long as everyone is playing by the same set of rules, but we can't compete against governments. China's currency manipulation has run up a $1.4-trillion trade surplus with the United States since 2001. When is enough, enough?

We need to pass legislation that effectively addresses unfair trade and currency policies that have devastated U.S. manufacturing. That is where the CRFTA comes in. It builds on, refines and streamlines earlier proposals made in the 109th and 110th Congresses and establishes an effective trade remedy provision to neutralize currency undervaluation. Specifically, it neutralizes the negative effects of misaligned foreign currency by allowing injured American industries and their workers to seek remedies under current trade laws. It also directs the U.S. Commerce Department to measure whether a country's currency is fundamentally misaligned in a public, transparent and fair way using public data from the International Monetary Fund. It also creates an incentive for foreign governments to cease their unfair, mercantilistic trade practices and serves as a deterrent against similar abuses in the future.

The AISI earlier this year commended Sen. Debbie Stabenow (D., Mich.), Sen. Sherrod Brown (D., Ohio) and Sen. Jim Bunning (R., Ky.), Rep. Tim Ryan (D., Ohio) and Rep. Tim Murphy (R., Pa.) for reintroducing the CRFTA, a critical step toward leveling the playing field for American manufacturers. We are glad that the bipartisan support of members who have joined as co-sponsors is growing, and we will continue to urge Congress to enact it into law.

China's trade practices, including currency manipulation, in effect created more than $50 billion in subsidies just in the steel sector. These subsidies include debt-to-equity swaps, money to upgrade the steel industry, inadequate enforcement of environmental and worker safety rules, and large-scale subsidies in the form of preferential loans from state-owned banks, tax incentives, interventions to maintain exchange rate misalignment and—of growing concern—manipulation of raw material markets.

In fact, in June the United States and the European Union filed a dispute with the WTO challenging China's export restrictions on key raw materials and minerals used in manufacturing. The AISI and four other steel industry organizations whose workers and member companies represent all of America's steelmaking capacity commended the Obama administration and the office of the U.S. Trade Representative (USTR) for leading the effort to bring the case. China's barriers on raw materials and minerals is just another way in which China favors its domestic manufacturing industries at the expense of the rest of the world. When China joined the WTO in 2001, it committed to removing these restrictions. China is the largest importer of U.S. goods, with trade expanding to $408 billion last year.

Another China trade issue concerns the Chinese government's decision to raise its value-added tax (VAT) export rebates on a wide array of flat, long and tubular products. This government action, reflective of China's long-standing efforts to manipulate its VAT system in order to promote steel exports, is particularly reckless in light of the fact that we are facing a global recession.

Since the United States has neither a system of VAT rebates to stimulate exports nor any import duties on steel mill products (we agreed to go to zero steel tariffs in the Uruguay Round), these moves represent particular harm to American steel producers. The fact that these trade-restricting and trade-distorting actions were apparently taken largely by fiat, and without any transparency in process or policy, is a further cause for concern—reflecting a tendency to promote particular outcomes in trade through direct government intervention rather than through a transparent, rules-based approach. The AISI flagged these actions with the U.S. government to review in light of the importance of trade relations with China.

These are but a few of the trade issues at the forefront of what the AISI has highlighted to the administration and Congress as key policy objectives to establish and enforce trade policies that will truly level the international playing field for all manufacturers and to bring an emphasis to getting tough on unfair trade from China.

We are encouraged by the progress that has been made with the CRFTA and strongly support its passage. We also appreciate the leadership exercised by the Obama administration and the USTR with respect to export restrictions placed on a variety of raw materials and minerals. One day, perhaps the rhetorical question "When is enough enough?" will go away. Until then, we must remain vigilant in our efforts to enforce rules-based trade.

Thomas J. Gibson is president and chief executive officer of the American Iron and Steel Institute, Washington.

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